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OCR for page 206
The Child Care
Tax DeductiorICredit
John R. Nelson, Jr:, and Wendy E. Warring
INTRODUCTION
The child care tax deduction/credit originated in 1954 as
an itemized deduction for work-related day care expenses.
It was limited to $600 and to households in which both
the husband and wife worked and that had an adjusted
gross income of $4,500 or less. Designed as both a labor
supply and a relief measure, the deduction reached an
average of 290,000 households in the first decade after
its enactment. (For these data and their sources see
Appendixes A and B.) To reflect the rise in family
incomes, Congress updated it in 1964 by increasing the
income ceiling to $6,000 and the maximum deductible
amount to $900 for two or more children. These changes
allowed an additional 125,000 households to claim the
deductions, but the tax savings per household still
remained the same--approximately $70 per year. By 1971,
constant agitation for revision of the deduction cul-
minated in several significant changes. It was renamed
the "job development deduction," and Congress, specifi-
cally the Senate, tripled the income ceiling to $18,000,
increased the deductible amount eightfold to $4,800 per
year, and allowed the deduction of housekeeping services
to stimulate the employment of low-income persons as
domestic housekeepers. These changes doubled the annual
average tax saving per household to $135. Less biased
against working mothers, Congress sought to provide tax
relief to dual-career families in middle- and upper-income
brackets. This revision altered one major purpose of the
original deduction: relief for low-income families. It
became instead a tax incentive for their employment in
higher-income households.
206
OCR for page 207
207
In 1975, Congress updated it again by raising the
income ceiling to $35,000, but this change was principally
a compromise measure to postpone for further deliberation
a major overhaul or one aeauccl~n. -l-l~a~ ~v=~. ma.__
came to fruition in 1976 when Congress dropped the job
development title, removed the income ceiling, and trans-
formed it into a 20-percent tax credit on care-related
expenses up to $2,000 for one dependent and $4,000 for
two or more dependents. As a credit, all eligible house-
holds could claim the tax benefit whether or not they
itemized deductions on their tax returns. In 1977, 2.85
million households claimed the child care credit and
saved $517 million in income taxes--an average savings of
$177 per household. This case study examines each of
these four major revisions in the child care
deduction/credit.
In many respects the subject of this study represents
a different genre from the other two cases. It is not a
federal program or regulatory policy. Its enactment
entails no new bureaucratic structures and very little
administrative history. Yet income is transferred,
regulations are promulgated, and the society is affected.
Indeed, taxation is the one federal policy that touches
virtually every citizen in a regular, direct, and visible
manner. Three elements affect this policy formation
process: the revenue and distributional effects of
proposed changes, the equity of such changes, and the
maintenance of incremental increases and decreases in
progressive tax rates. The first consideration is an
obvious outgrowth of the purposes of taxation: to raise
revenue. The second seeks to ensure equal treatment for
taxpayers in similar situations. The third is to avoid
abrupt shifts in tax rates across small changes in income.
The policy-making processes are confined chiefly to
the House Ways and Means Committee, the Senate Finance
Committee, the Office of the Assistant Secretary of the
Treasury for Tax Policy, and the Joint Committee on
Taxation. Each has an institutional role. The Joint
Committee staff serve as technical adviser to the
Congress. The bills originate in Ways and Means, which
tends to be conservative in its measures. It is distinc-
tive among congressional committees in its careful
deliberations, its close alliance with professional
staff, and, until recently,
. . · ~ ~ ~ _ _ ~ _ . , - ; _ _, . . .
its lack of subcommittees.
Moreover, its legislation generally comes to the floor
under a closed rule, though amendments are sometimes
permitted. Since Wilbur Mills's departure as chairman,
OCR for page 208
208
however, these committee attributes have changed somewhat
The Senate Finance Committee has similar attributes, with
one major difference. Finance Committee bills are open
to amendment on the Senate floor. Consequently, its
measures are often amended to provide more generous tax
benefits than House measures. The committee has less
than final determination over its legislation, yet the
Senate debates over tax provisions, Joseph A. Pechman
observes, "rank among the most informed discussions held
on the Senate floor."
, .
The role of the U.S. Department of the Treasury and
its Internal Revenue Service (IRS) is to maintain the
structural integrity of the tax system, to curb revenue
losses from the special benefits so popular with Congress,
and to represent the President's tax proposals before
Congress. Treasury works to accomplish this through
direct negotiations with congressional committees at each
stage in the tax-writing process. Once passed by Con-
gress, the tax bills become operative in substantially
the same form in which they are written. Since 1948 only
once has a president vetoed a tax bill: that veto by
Gerald Ford in 1975 was the result of a conflict with
Congress over a concomitant spending ceiling, not the tax
provisions themselves. Although numerous judgments are
made by the IRS and federal tax courts on specific
applicability in individual cases, the basic principles
and structure of the policy remain unimpeded between
legislative enactments.
The mechanics of the income tax are straightforward,
though the nuances are often obscure to the point of
unintelligibility. In principle, a taxpayer totals all
income from wages, interest, dividends, alimony, etc., to
arrive at a gross income. He or she then subtracts the
allowable expenses incurred in earning that income (e.g.,
business and moving costs) to reach an adjusted gross
income. These adjustments are "above-line" and open to
all eligible taxpayers regardless of whether they elect
the standard deduction or itemize. After calculating the
adjusted gross income a taxpayer can either take a fixed
standard deduction (now referred to as the "zero-bracket
amount") or itemize deductions to arrive at his or her
taxable income. In either instance the taxpayer is
allowed a fixed exemption of a particular dollar amount
from the taxable income for himself or herself and each
dependent. The actual tax is based on the taxable income.
From the tax itself a credit is allowed for certain items
(or portions of items). A credit represents a specific
OCR for page 209
209
dollar amount subtracted directly from the tax liability.
An adjustment to gross income or a tax credit benefits
all eligible taxpayers regardless of their decision to
itemize deductions. A deduction benefits only those who
elect to itemize. Generally speaking, a deduction and an
adjustment benefit higher-income groups more than lower-
income groups, while a tax credit has the opposite effect.
.
THE ORIGINS OF THE CHILD CARE DEDUCTION
In 1861 the federal government levied the first tax on
individual incomes to raise urgently needed revenue for
the Civil War .2 Until that time customs duties, excise
taxes, and land sales provided all federal tax revenues.
The income tax was a straightforward 3 percent levy on
incomes up to $10,000 and 5 percent on incomes above that
amount. The law allowed each taxpayer an exemption of
$600. Congress raised tax rates in the next years to 10
percent on a net income between $600 and $S,000, 12.5
percent on income between $5,000 and $10,000, and 15
percent on income above $15,000. When the income tax law
expired in 1871, the rate was 2.5 percent and the exemp-
tion $2,000. After its expiration, excise taxes and
customs duties resumed their runcclon or ~u~'>'l~y ,~v=~.-
for the government until 1909. Congress attempted to
revive the income tax in 1894. The tax was 2 percent on
individual and corporate net income, with a $400 exemption
for individuals. Personal property received by gift or
inheritance was included in net income. The Supreme
Court, however, declared the act unconstitutional in
1895. It ruled that the portion of the personal income
.
~ ~ ~ ~ , - ; _ ~ _ ~ ~ ~ ~ ~ 1 ~ ~
tax levied on income from land was a "direct" tax and in
violation of the constitutional requirement that direct
taxes had to be apportioned among the states according to
population.
Despite the decision, agitation for an income tax
continued. As the American economy matured and industry
gained the strength to withstand foreign competition,
Congress reduced tariff rates. Many groups saw the income
tax as a way to compensate for the resulting revenue
losses and inject a progressive element into the revenue
~ TO ~ ~1 ~ ohm ^~=cc~rv ctAt-~-c- ratified the 16th
amendment to the Constitution and gave Congress "the
power to lay and collect taxes on incomes, from whatever
source derived, without regard to any census or enumera-
tion." Shortly thereafter, Congress passed the income
by ~ ~111 e 111 ~"~= 11~~~ ~LIZ ~ ~~ ~~~ ~ ~ ~
OCR for page 210
210
tax law. The tax applied to wages, salaries, interest
dividends, rents, entrepreneurial incomes, and capital
gains. There were two categories of tax levies: normal,
a flat 1 percent rate on all income above $3,000 ($4,000
for married couples), and surtax, a progressive rate from
1 percent to 6 percent on larger incomes. It allowed
deductions for interest on debts, nonincome tax payments,
and business expenses. State and local government
employees were exempted from paying the tax; the interest
on federal, state, and local government bonds was also
exempt. The surtax, however, applied to income exempted
from the normal tax.
In 1917, Congress introduced a credit for dependents
and a deduction for charitable contributions. Successive
changes continuously complicated the 1913 law. Not until
1939 did Congress codify the revenue acts that had accumu-
lated over the years. By today's standards exemptions
were high and few incomes were large enough to be subject
to even the lowest tax rate. Prior to World War II the
income tax applied mainly to a small number of people
with high incomes and created tax liabilities of approxi-
mately $1 billion.
The 1939 code did not remain unmolested for very long.
World War II brought a new dimension of complexity to the
tax laws. In the national effort to raise revenue, exemp-
tions were greatly reduced, rates were increased, and
substantial growth coupled with an upward shift in income
occurred in the tax base. Congress also made a series of
structural changes in the tax code.
Beginning with tax-
able year 1941, taxpayers whose gross incomes did not
exceed $3,000 from specified sources were able to submit
a simplified return. The return allowed them to deduct a
standard percentage of earned income from their adjusted
gross income. Those who did not use the short form were
required to itemize their deductions. In 1944 legislation
further simplified tax returns by making the standard
deduction part of the Internal Revenue Code. Taxpayers
had the option of deducting 10 percent of their adjusted
gross income up to $500 from 1944 to 1947 and $1,000 from
1948 to 1970. When it was first introduced, over 80
percent of taxpayers used the standard deduction.
The growing complexity and the residue of anachron-
istic provisions had rendered the tax code difficult to
understand and administer. At the outset of the 1950s
the Treasury Department and the Joint Committee on
Taxation made preparations to simplify and reorganize the
1939 Code. These resulted in the Internal Revenue Code
OCR for page 211
211
of 1954, the last codification of the tax law to the
present. The groundwork for a major tax revision began
as early as l9Sl, but most of the legislative tax writing
took place in the House Ways and Means Committee during
the first session of the 83rd Congress. In that session
the committee began drafting H.R. 8300, the nucleus of
the 1954 code. The bill contained approximately 27 major
new tax provisions affecting both corporate and individual
taxpayers. Among these was an itemized deduction for
child care expenses. As one might anticipate, the child
care deduction ignited some controversy in Congress.
The issue of a child care deduction was not new.
Litigation on the subject began as early as 1939. In
that year a married couple contested the IRS's exclusion
of child care as a business deduction. The plaintiffs
argued that expenditures for nursemaids should be con-
sidered an ordinary and necessary business expense of the
wife. They contended that expenses incurred to care for
their young children were necessary to earning an income
because without some provision for care the wife would
not be free to leave her children to pursue employment.
The court characterized their argument as the "but for"
test and rejected it as too broad:
The fee to the doctor, but for whose healing
services the earner of the family income could not
leave his sickbed; the cost of the laborer's
raiment, for how can the world proceed about its
business unclothed . . . might all by an extension
~ ~ ~ ~ ~ _ ~ ~ ~ ~
of the same provision De conscruea as neck
the operation of business and to the creation of
income. Yet these are the very essence of those
personal expenses the deductibility of which is
expressly denied .3
The court explained that child care, like other
aspects of family and household life, was nothing other
_,
than a personal concern because "the wife's services as
custodian of the home and protector of its children are
ordinarily rendered without monetary compensation." The
same work performed by others is still of a personal
nature. Although the court conceded that certain business
expenses were often personal, such as entertainment,
traveling expenses, or the wardrobe of an actor, it drew
a fine line between activities that are ordinary to the
direct accompaniment of business pursuits and those that
relate "in some indirect and tenuous degree" to employ
OCR for page 212
212
ment but are "of a character applicable to human beings
generally. t'4 Expenditures for child care, the court
concluded, existed on a personal level regardless of an
individual's occupation.
Taxpayers did not give up after the 1939 decision.
Several subsequent cases claimed a child care deduction
as an allowable expense for the production of income
under Section 213.
In each case, the court affirmed that
child care expenses were not deductible under existing
tax laws. The thrust of the court's decisions was that
all personal deductions were granted by legislative
discretion and could not serve as precedents for new
deductions, however similar they might be in principle
.
.
Indeed, the same argument was applicable to business
deductions. What constituted an expense "ordinary and
necessary" to business was by no means unambiguous. The
courts generally followed the legislature and IRS in
their determinations of proper business expenses. Like
personal deductions, business expenses were as much a
matter of fiat as principle.
No single consideration readily explains why members
of Congress and the administration proposed a child care
deduction in the 1954 code. Apparently, several circum-
stances turned the cases brought by a few determined
taxpayers into law. In 1953 there were 19 million women
in the labor force, who constituted 33 percent of the
entire working population: 27 percent of all married
women worked, and there were approximately 9 million
working mothers. About 25 percent of working mothers
(2.25 million) had children under the age of 18, and 16
percent (1.44 million) had children under 6 years old.
In other words, 64 percent of the working mothers with
minor children had preschool children.5 Social mores
notwithstanding, working mothers were fast becoming a
fact of American life.
There was some precedent for federal involvement in
helping working mothers care for their children. In 1942
the Federal Works Agency obtained an interpretation of
the Lanham Act for defense housing and public works that
allowed funding of day care facilities. This program
spent $52 million over three years to care for 109,000
children across the country. When World War II ended so
did federal aid, but during the Korean War, Congress
passed an authorization for day care grants: the Defense
Housing and Community Services act. Although with this
act Congress had formally acknowledged the need for day
care services due to the steady influx of women into the
OCR for page 213
213
labor force, the provision was never funded and the
authorization lapsed with the armistice. In 1953 the
Children's Bureau and the Women's Bureau of the Depart-
ment of Labor sponsored a conference on services for the
children of working mothers. They stressed the growing
number of mothers entering the labor force to fill vacant
jobs and to supplement family income. The conference
concluded that these women, many the sole support of their
children, required government aid for their children's
care. The issue, therefore, was far from dormant.6
There was much support for some sort of child care
deduction. The CIO, the American Nurses Association, the
American Hospital Association, the American Federation of
Government Employees, the Office Employees International,
the American Bar Association, and the American Institute
of Accountants all supported a deduction. A report of
the Joint Committee on Taxation observed that a "large
number of letters" had recommended special tax treatment
for child care expenses ;7 29 members of Congress
proposed or spoke in favor of such provision. The
deduction was not a partisan issue. It turned upon
considerations less cosmic than the then heated battle
between Democrats and Republicans over redistribution and
balanced budgets. Proponents offered three rationales
for the deduction. First, child care expenses were
necessary to the conduct of business and hence deductible.
Second, working mothers were compelled to seek employment
by economic necessity, thus defraying their child care
expenses was a justifiable relief measure. Finally, tax
subsidies for child care would enable welfare mothers to
avoid the dole and support their children through employ-
ment. The costs of the Aid to Dependent Children (ADC)
_
program would thus decline.
Within these basic overlapping rationales, there were
many nuances among the bills. Generally, however, they
raised two major questions: Should child care be treated
as a business or personal expense, and what should define
a taxpayer's eligibility for the deduction? The first
question involved where the deduction should be allowed.
Business expenses, as adjustments to gross income, were
deducted before personal items, thereby reducing the
taxpayer's liability regardless of whether he or she took
the standard deduction.
If the child care deduction were
incorporated as a business expense, then the qualified
population would include all otherwise eligible taxpayers
with a dependent, whether or not they itemized their
returns. The 75 percent of the taxpayers who took the
OCR for page 214
214
standard deduction in 1954 would then be able to deduct
child care expenses. The second question involved which
taxpayers were eligible for the deduction. The taxpayer,
naturally, had to have a dependent child and be gainfully
employed. Some bills extended the deduction only to
widows, widowers, and divorced or separated mothers.
Others allowed all families with both parents working to
claim it. Some placed income limits on families and
varied the age limits for eligible dependents.
Supporters of the deduction, who equated child care
with a business expense, included the American Bar
Association, American Institute~of Accountants, and
American Nurses Association. An institute representative
summarized this rationale in testimony before the Ways
and Means Committee: "Taxable income," he stated, was
only that portion of the gross amount earned that remained
after expenditures "necessary and ordinary to the produc-
tion of income" were subtracted. Since child care was an
ordinary expense to the production of income, deducting
it was therefore legitimate under the current code. An
amendment to Section 23 of the 1939 code covering business
deductions would only affirm what was true though miscon-
strued by the courts. The American Nurses Association
advanced a similar case. Congress, they argued, had
recognized that it is equitable to tax only net income--
income actually available for the taxpayer's discretionary
use. The association added that expenses such as alimony
and entertainment, currently deductible under this prin-
ciple, were more in the nature of personal expenses than
are the payment of wages for services to a custodian of
one's child.8
Representatives in Congress echoed the belief that a
child care deduction was consistent with the principles
of a business deduction. Many of their arguments, more-
overy stressed not only the equitable nature of the deduc-
tion, but also that a failure to enact the provision
would prove discriminatory and inhumane. Representative
Kenneth Roberts of Alabama, for example, argued that
women and working mothers bore an unjust burden because
of an outdated court decision. nit is a little hard,"
Roberts concluded, "to reconcile the present insensitive
attitude on the part of the government which allows a
lawyer to deduct entertainment fees lavished upon a
prospective client . . . which will not grant this
privilege to the working mother who toils all day in the
factory and works for her family in the evening in the
hope that her children may have a better life."9 In
OCR for page 215
215
sum, several members of Congress and advocates from
various interest groups in favor of a child care deduction
saw the principle of a business expense deduction as a
precedent for allowing a deduction for child care.
The second basic rationale advanced the child care
deduction as a relief measure for working women.
Supported by the CIO and other unions with female members,
this argument involved debate on a wider range of issues.
The legislators favoring this position needed at the very
least to prove that women were compelled to work. They
had to disabuse their fellow legislators of the current
notion that women worked only for personal pin money.~°
They had to demonstrate, in the words of one representa-
tive from New York, that the "great majority of these
(working) mothers would sooner prefer to remain at home
and devote themselves to raising their children were it
not for economic circumstances which force them to become
the breadwinners of their family."
The most obvious and persuasive example of economic
compulsion was that of widows and widowers who were the
sole means of support for their children. The case became
more difficult to prove when mothers worked despite the
presence of a working husband. Opponents of a broad
deduction asked why these wives could not stay home where
they belonged. Why, in other words, should the deduction
not be restricted to single parents? Supporters answered
that most women worked because their families desperately
needed the money. The low income of households with
working women demonstrated that necessity, not choice,
dictated these mothers' entry into the labor force. The
deduction was a relief measure for them and not an induce-
ment for those mothers still at home to seek employment.
The evidence, they concluded, demonstrated that very few
mothers work if they have a choice.
The third rationale involved the potential of lowering
welfare costs by providing a tax incentive for ADC fami-
lies. Representative James Davis of Georgia observed
that "this nation spends hundreds of millions of dollars
each year for child welfare, aid to dependent children,
etc., but when a mother has the courage to support her
children by working rather than accepting government aid,
she is penalized by the law." Others praised the working
mother for her "courage" and "independence" in working
when the cost of day care rendered it more lucrative to
stay home "in idleness and rely on the country welfare
board to take care of her." The child care deduction,
Davis emphasized, would guarantee working parents the
OCR for page 216
216
money to find "proper care" for their children. He
promised that the deduction would aid in "keeping
families together, preventing juvenile delinquency, and
having children reared under influences conducive to good
citizenship." 2
The implicit counterpart of women's needing to work
was the economy's need for women workers. "An important
point to make," one member of Congress explained, "is
that not only do women work because they have to, but
under our present economic system we need these women
workers."~3 The memory of World War II was fresh, and
the United States was involved in the Korean War.
Testifying before the Ways and Means Committee, one
witness adduced that if the country's defense production
and military requirements continued to expand, more women
would be called to work. Women, she added, are the
nation's greatest source of reserve labor needed not only
in times of emergency, but also in peacetime professions
such as teaching and nursing. 4 In the early 1950s
there was a serious labor shortage in these professions
traditionally filled by women. Many contended that the
low wages prevented women from continuing to work in
these fields after having children. They simply could
not afford to work and pay for the care of their children.
Representative Roberts explained that "the present
inequitable tax law has an adverse effect on the welfare
of the country by making it difficult to keep women in
the fields of teaching and nursing where a critical labor
shortage exists." These jobs were underpaid to begin
with, and "nondeductible child care expenses" made it
"hardly worthwhile for these women to continue to work
once they have families."~5 The American Hospital
Association and the American Nurses Association agreed.
The nurses association contended that although more
nurses were working in 1954 than at any other time, a
critical shortage of nursing services in cities and rural
areas still existed. The shortage could be remedied in
part by allowing working women to deduct expenses for the
care of their children. They pointed out that although
60 percent of all registered nurses were active in
nursing, only about a third of those with dependent
children were practicing their professions. Inactive
nurses, who were otherwise willing to work, simply could
not afford to do so. Tax relief, they contended, would
create incentives for women to return to work. 6
There was a certain paradox between the labor supply
and rationales of economic necessity. Those who argued
OCR for page 255
255
1976), 1090-1096; and C. McCarthy et al., The Federal
Income Tax: Its Sources and Application (New Jersey,
1968), passim.
3 Henry C. Smith v. Commissioner, 40 B.T.A. 1038.
4 Alan Feld, "Deductibility of Expenses for Child
Care and Household Services: The New Section 214," Tax
Law Review, 27 (1972); and William Klein, "Tax Deductions
for Family Care Expenses," Boston College Industrial and
Commercial Review, 14 (1973).
l
5 Bureau of the Census, Statistical Abstract of the
United States, 1954.
6 Gilbert Steiner, The Children's Cause
(Washington, D.C.: 1976), 16-18; and Department of
Labor: Women's Bureau, Planning Services for Children of
Employed Mothers (Washington, D.C.: 1953), 10.
7 Report of the Joint Committee on Taxation (April
21, 1953), 52-55.
BUSS. Congress, Hearings before the House
Committee on Ways and Means on General Revenue Revision,
83:1 (1953), 49-52.
9Ibid., 37-41.
Unrepresentative Samuel W. Yorty, February 18,
1953, Congressional Record--Appendix, A937.
unrepresentative Louis B. Heller, Hearings before
. . . Ways and Means General Revenue Revision, 57-58.
|2 Representative James C. Davis, June 9, 1953,
Congressional Record--Appendix, A4191; Representative
Wesley D. Ewart, Hearings before . .
. Ways and Means on
General Revenue Revision, 58-59. and Davis, ibid., 33-36.
i3 Representative Leonore K. Sullivan, Hearings
before . . . Ways and Means on General Revenue Revision,
31-33.
|4 Nancy Henderson, ibid., 61-63.
Tibia., 37-41.
i6 Ibid., 49-52.
i7Ibid., 53.
Rabid., 63.
i9Report of the (Treasury Department) Subcommittee
on Deduction of Expenses of Child Care (July 15, 1953),
Treasury Department Document (cited henceforth as TDD);
and The Budget: Message from the President, January 21,
l9S4, House Document 83-264.
2 ° House Report 83-1337 (1954). The exact source of
the "available data" on child care costs and age is not
clear from the legislative record. Apparently, the
committee was referring to a study of child care
arrangements in Wichita, Kansas.
OCR for page 256
256
2 1 Senate Report 83-1622 (1954).
2 2 Ibid.
2 3 Conference Report 83-2543 (1954). The revenue and
household estimates are given in the respective reports
of each chamber.
24 Internal Revenue Code (1954), Section 214.
2 5HR12470, 87th Congress, 2nd Session (1962). The
survey of bills related to the child care deduction is
drawn from the Congressional Record--Indices (1957-1962).
2 6 James Sundquist, Politics and Policy: The
Eisenhower, Kennedy and Johnson Years (Washington, D.C.:
1968), 34-56.
27 Message from the President (January 24, 1963),
House Document 88-43.
2 ~ Although the commission issued its final report
subsequent to the administration's proposals for tax
reform, the commission's recommendations and general
findings were known to the administration when it drafted
the proposals.
29 President's Commission on the Status of Women,
Report of the Commission on Social Insurance and Taxes
1963), passim.
(Washington, D.C.:
3 °Ibid.
3 president's Commission on the Status of Women,
Re rt of the Committee on Home and Community
P°
(Washington, D.C.: 1963), passim.
3 2 U. S. Congress, Hearings before the House Committee
.
on Ways and Means on the President's Tax Message, 88:1
(1963), 6-7, 42-43, 86-87,
3 3 Ibid., 750-761.
3 4 House Report 88-27 (1963); and P.L. 88-4.
35 February 26, 1963, Congressional Record--House,
2999; and March 19, 1963, Congressional Record--Senate,
4544-4545.
36 (Treasury Department) Subcommittee Report: Child
Care Deduction (January 17, 1963), TDD.
37 Surrey: Memo to Files (April 23, 1963), TDD; and
Surrey: Child Care (June 5, 1963), TDD.
3 ~ House Report 88-749 (1964).
3 9 Undersecretary Henry H. Fowler to Assistant
Secretary of Labor Esther Peterson, Augus_ 28, 1963, TDD;
and Bureau of the Budget--Legislative Reference File
G3-6/63.6: Volume II (1963) Record Group 51, National
Archives.
4 ° October 3, 1963, Congressional Record--Senate,
23252-23253.
4 ~ Senate Report 88-830 (1964)
202-208, 592-595.
\
.
OCR for page 257
257
42 Ibid.
4 3 Conference Report 88-1149 (1964); and P.L. 88-272,
Sections 212-214.
44 Congressional Record--Indices (1965-1971);
Statistics of Income: 1960, 1966.
4 5 May 4, 1966, Congressional Record--House, 9845.
4 6 Nolan to ABA, TDD.
4 7 Schuldinger: Deduction for Child Care (November
24, 1971), TDD, discussed the Viorst proposal in detail.
48 November 15, 1971, Congressional Record--Senate,
41251-41252.
4 9 Citizens' Advisory Council on the Status of Women,
Women and Their Families in Our Rapidly Changing Society
(Washington, D.C.: 1968), passim.
50 Citizens ' Advisory Council on the Status of Women,
Report of the Task Force on Women's Rights and
Responsibilities (Washington, D.C.:
1970), passim.
Noncitizens' Advisory Council on the Status of Women,
Re rt of the Task Force on Social Insurance and Taxes
po
(Washington, D.C.: 1968), passim.
52 Ibid.
S 3 Ibid.
S 4 Grace Blumberg, "Sexism in the Tax Code: A
Comparativ'e Study of Income Taxation of Working Wives and
Mothers," Buffalo Law Review, 21 (1971-72), passim.
55 June 4, 1971, Congressional Re_ord--Senate, 18106.
"VFor a discussion or the Nixon aam~n~scrac~on-s
Family Assistance Plan see Daniel P. Moynihan, The
Politics of a Guaranteed Income (New York: 1973).
5 7 June 4, 1971, Congressional Record--Senate, 18106
5 Senate Report 92-437 (1971).
5 9 Ibid.
6 ° November 12, 1971, Congressional Record--Senate,
40934-40935.
6} Ibid.
6 2 November IS, 1971, ibid., 41251-41252.
6 3 Ibid., 41252.
6 4 Ibid., 41253.
6 5 Ibid., 41253-41256.
6 6 Bird: Child Care Deduction (November 30, 1970),
Joint Committee on Taxation Document (cited hereafter as
JCTD); and Michael Bird, Joint Committee on Taxation, to
Stanley S. Surrey, June 22, 1971, JCTD.
67 Office of Tax Analysis: Treasury Position before
the Conference Committee (November 24, 1971), TDD; and
Re: Tunney Amendment (no date), TDD.
68 Ibid.
OCR for page 258
258
69 Ibid.
7 Conference Report 93-708 (1971).
7 Miriam Schwartz Alers, "Dependency and the Loss of
Benefits Under Section 214 of the 1971 Tax Code," Case
and Comment (November-December 1974), 44-50; Blumberg,
"Sexism in the Tax Code," passim; Feld, "Deductibility of
Expenses for Child Care," 415-447; Carol S. Greenwald and
Linda G. Martin, "Broadening the Child Care Deduction:
How Much Will It Cost?" New England Economic Review
(September-October 1974), 22-30; Roland L. Hjorth, "A Tax
Subsidy for Child Care: Section 210 of the Revenue Act
of 1971," Taxes, 50 (1972), 433-445; John B. Keane,
.
"Federal Income Tax Treatment of Child Care Expenses,"
Harvard Journal on Legislation, 10 (1972), 1-40; and
Klein, "Tax Deduction for Family Care Expenses," 917-941.
72 John V. Tunney, "You've Been Singled Out"' Single
Parent (May, 1972), 3-5.
7 3 October 5, 1972, Congressional Record--Senate,
33869.
7 4 Ibid., 33870-33873.
75 Frederic W. Hickman, Deputy Assistant Treasury
Secretary to Long, April 28, 1972, TDD.
7 6 Congressional Record--Indices (1972-75); and
Oppenheimer to Hickman: Simplification, Prior Conference
with Larry Woodworth (April 4, 1973), TDD.
77Balle to Hickman: Child Care Deduction (April 4,
1975), TDD.
78Canty: Child Care (May 21, 1974), TDD; and Joint
Committee on Taxation Report 22-74 (November 18, 1974), 4.
79 Bird to Woodworth: Further liberalization of the
child care deduction (June 4, 1974), JCTD.
8°Woodworth to Representative James R. Jones,
October 20, 1975, JCTD.
Congress and the Nation, IV, 89-90, 100.
~ 2 Ibid., 91-95; March 12, 1975, and March 21, 1975,
Congressional Record--Senate, 53780-53781, 54651-54652.
~ 3 March 21, 1975, Congressional Record--Senate,
54652-54653.
~ 4 Senate Report 94-36 (1975); and Conference Report
94-120 (1975).
Disinformation provided by staff and members of the
House Committee on Ways and Means.
~6 Ibid.
~ 7 House Report 94-658 (1975).
88U.S. Congress, Hearings before the Senate Finance
Committee, 94:2 (1976), 94; and Tax Simplification:
Credit for child care expenses (May 17, 1976), TDD.
OCR for page 259
259
89U.S. Congress, Hearings before the Senate Finance
Committee, 94:2 (1976), 227; and July 21, 1976,
Congressional Record--Senate, S12151-S12152.
90 July 21, 1976, Congressional Record--Senate,
S12152-S12154.
suboffice of Management and Budget, Legislative
Reference File G3-14/75.5 (1976); and Conference Report
94-1515 (1976).
9 2 Calculations derived from Internal Revenue
Service, Statistics of Income: 1976 (Washington, D.C.:
1978), 86. All figures are rounded.
9 3 House Report 95-1092 (1978).
94Ibid., and P.L. 95-600.
OCR for page 260
Appendix A
Legislative Changes in the Child Care
Date of Final Eligible Eligible Size of
Enactment Households Expenses Deduction
1954 widowed or divorced any expenses $600 maximum
mothers, widowers incurred in regardless of
itemized with children, caring for a number of
deduction mothers with Inca- child or children
pacitated spouses, dependent
families in which physically or
both parents work mentally in
and f ile a joint capable of
tax return caring for
himself--if the
care expense s
allow th e
parent (s) to
pursue gainful,
full-time
employmen t
. .
1964 (wives deserted by unchanged $600 for one
the i r bus band s f or dependen t, S9 O O
i temized one year were made for two or more
deduction eligible in 1963)
single fathers and
f ether s w ith incapa
c i bated w ive s adde d
1971 unchanged included $400 per Month
expenses for allowed for in
itemized housekeeping home care; out
deduction of-home: S200
per month for
one child, S300
for two, $400
for three
or mor e
1975 unchanged unchanged unchanged
i temi zed
deduction
1976 a parent maintaining care expenses 20% credit for
the household of a to allow care expenses up
credit child, even if he parent to to S2,000 per
is not eligible attend school year for one
for the tax exemption, full-time, child, $4,000 for
can credit care also for part- two or more;
costs against his time work up maximum credit $400
taxes; a spouse to the amount for one child,
deserted for six of income $8()0 for two or
months or more is made more; all distinc
eligible Lions between in
and ou t-of -home
care abolished
1978 unchanged unchanged unchanged
c red i t
260
OCR for page 261
Tax Deduction/Credit, 1953-197 8
Income
Limitation
Age
Limi t
Miscellaneous Estimated
Provisions Revenue Loss
-
-
$4,500,
deduct ion
reduced $1
for S1 over
1 imi tat ion--
phased out
at $5,000
under 12
i ncome 1 imi t appl ies
only to households
i n wh ich both
parents worked
$140 million
$6,000, same under 14
marg inal
reduction
none
$20 mill ion
S18, ooo,
deductions re-
duced 50d per
S1 over
1 imitation--
phase-ou t a t
S27, 60 0
under 15
income 1 imit
applies to all
households
claiming the
deduc t ion
. . .
$145 million
S35,000 mar-
g inal phase-
out S44,600
none
unchanged none
S107 million
unchanged payments to non-de
pendent relatives,
who are members of
taxpayer 's household,
a r e deduc t ible-
provided their
services constitute
employment for social
security purposes
S325 million
u nchang ed unc hen 9 ed
all payments
except those to
a dependent or
child under 19
of the taxpayer are
eligible
$36 million
261
OCR for page 262
Appendix A (continued)
Distr ibution of Households and Tax Savings by Income Class
1954 Under $5, 000
Over S5,000
213,000 $ 12 million (67%)
60,000 S 6 million (33%)
Totals273,000 S 18 million
1966 Under S5,000 99~000 $ 7 million (33%)
SS - $10,000 136,000 $ 12 million (57%)
$10 - $15,000 14,000 S 1 million (5%)
Over Sl5,oOo 5,000 S 1 million (5% )
Totals 254,000 $ 21 million
1972 Under S5,000 47,000 $ 4 million (2%)
$5 - $10,000 455,000 S 49 million (24%)
Slo - $15,000 625,000 S 74 million (36%)
Over $15,000 442,000 $ 81 million (39%)
Totals 1,569,000 $208 million
1975 Under S5,000 8,000 S 1 million (.4%)
$5 - S10,000 344,000 S 52 million (19%)
Slo - $15,000 604,000 S 96 million (35%)
$15 - S20,000 575,000 $103 million (37%)
Over S20,000 134,000 S 24 million (9%)
Totals 1, 666, 000
S275 million
1976 Under S5,000 27,000 S 3 million (.7%)
$5 - $10,000 365,000 $ 59 million (13%)
$10 - S15,000 600,000 $ 89 million (19%)
S15 - 20,000 709,000 Slll million (24%)
Over $20,000 959,000 S196 million (43%)
Totals 2, 660, 000 $458 million
not available
262
OCR for page 263
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Representative terms from entire chapter:
care deduction
